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Friday, May 27, 2011

WARNING SIGN

The debate lately is whether or not gold still has one more leg up. For the many reasons I went over in last night's report I think it has become too dangerous to continue to play the long side in the precious metals so I don't really care anymore whether gold is going up. The risk is now high that one gets caught in an intermediate decline or worse a possible D-wave.

Here is one more reason. The miners have broken below a prior daily cycle low.

This isn't a perfect signal. Of course nothing in this business works 100% of the time but this particular signal works about 80-90% of the time and those are the kind of odds it usually just isn't worth bucking.

You can see in the above chart that every intermediate decline in gold was preceded by the miners falling below a prior cycle low. That condition is now active in the current market.

As a case in point a violation of a daily cycle low in gold is the main confirmation we look for to confirm that gold has entered an intermediate degree decline.

I've marked the expected timing band for when the next intermediate low should bottom in late June to mid July. You can see that the summer low came last year in late July. The yearly cycle tends to run about 12 months on average so I wouldn't expect this to be over for at least another month to a month and a half. As it stands today gold topped on week 14. That gives it a lot of time to grind lower. As a matter of fact every intermediate decline since this phase of the bull began has dragged gold considerably below the 50 day moving average and fairly close to the 200 DMA. That would suggest gold would at least move back to $1400 if this is just a normal intermediate degree correction.

If this turns into a D-wave then we can expect at least a 38% retracement of the prior C-wave advance. This C-wave began in April of 09 at $860. A 38% retracement of that rally would drag gold back to roughly $1300.

Folks this is what you are risking getting caught in by trying to squeeze the last few pennies out of this sector. Now if gold was doing what I think it should be doing I would be happy to hang on to positions. But it's not! The weak dollar yesterday and today for that matter should be sending gold rocketing higher. So far it's not happening.Combine this with the warning sign from the miners and I simply don't want to play the game anymore. It's easier to just wait for the intermediate correction or D-wave to run it's course and then get in as close to the bottom as we can for a much safer trade and one we will be able to hold onto for 12 to 15 weeks with little fear of significant draw downs.

A IT cycle low is a given, for sure and it should start with the next daily. But, do you find it odd that we're dollars away from record high's, sentiment reset, COT reports fairly neutral and miners near last iT cycle lows? I mean, thats just not D wave material no matter how you slice and dice it.

To me, this is signalling an IT cycle low of the plain vanilla varity, a normal tag towards the 200dma, or whatever the previous IT lows tagged.

It's also signalling to me that the dollar may still have another IT cycle lower to go before printing a 3yr low. The 3 yr low was anything but a dollar collapse or panic.

I wouldnt touch puts now, BUT if we tag or make new Gold high's, buying some GLD Aug puts should work out fine. I wouldn't touch SLV as we just don't know how it will react, best to make the money on GLD where the expected decline has higher probability.

Poly,Unless gold can make a new high the IT cycle decline began with this daily cycle. So far gold is showing no ability to regain those highs even with a falling dollar and a falling dollar that is quickly moving into the timing band for a bottom.

A little off the current topic (I don't care about short term moves of a month or month and a half relative to a true Old Turkey, many years). I think your call to avoid silver and the probability of it getting back into the 20's is just wrong. I wouldn't (and am not) be so one sided to think gold will out perform silver on the next leg up. See this brief interview.http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/24_Embry_-_Silver_Market_Extraordinarily_Tight,_Look_for_$125.html

Poly,I'm kind of up in the air as to whether this will be just a normal intermediate decline or a D-wave. It depends on if the dollar still has another drop down into a final three year cycle low later this fall.

I cant see gold dropping below 1300, D wave or not. So anything close to that and Id be adding heavy.Also, there is no reason why gold couldnt make new highs next week, and then drop into the IT low, and it would appear absolutely normal...not say that it would, Im just saying that it could and it would be within the norms of the IT cycle duration.Bias long PMs

One can never "see" a D-wave coming but they do come. The question isn't whether we will have another one. We almost certainly will. They are necessary to keep the public off the bull as long as possible.

The question is will the current dip turn into a D-wave or will it just be a normal intermediate cycle decline?

JH are you hanging in there..... I found the above chart strapped to the ankle of a messenger pigeon from Alf. I'm keeping the pigeon in case wave 5 fails, that way I at least get to fire up the barbie as a consolation! The pigeon is getting nervous.

Arron,Of course $1300 would seem like the low now while gold is going up but at $1300 it's not going to seem like a bottom. Did $46 seem like a bottom in silver a month ago? How about $42? $40?

In theory any one of those levels should have halted silvers decline but it didn't stop till it reached $32.

So anyone who bought at $46, $42 or $40 is still underwater.

The same thing will happen at a D-wave bottom. You won't time the entry perfectly and have to suffer through a scary draw down. Most people freak and bail. It only takes one or two of those to ruin one mentally to the point where they can't pull the trigger again.

I think when we do finally get into a D-wave you will find out just how mentally tough you really are. Right now with the tiger inside the cage it's easy to be brave. But once you are inside the cage with him it's a whole different story.

I was actually in gold in April of 09 and was early, and was being margin called (no fun). I have no fear of losing money.The key is leverage for me. I add 1 or 2x to begin and add on strength.Trust me Gary, I have the scars and the stories from untold losses, yet it has made me the investor I am today, further aided by your cyle work(for which I am very thankful).I will still add at 1300, be it a bottom or not, unless ofcourse some drastic fundamental issue comes to play.

Gary, just stopping by to say 'hi.' Looks like you are tracking the cycles as accurate as ever. Are you still holding core positions? Or are you out completely waiting for the D Wave end?Just curious.tia

was the trade i.e. the circumstances for the trade (GLD, GDXJ, GDX) any better when you entered it vs. when you exited it. I think not, but if so what circumstances changed yesterday? Heart to heart, should one minimal down day make the difference? Volatility is inherent to PMs, you said so many times yourself.

Yes that's a very good point, but it's very far from irrelevant to my trade, it's everything as the trade is centered around it. If you recall, I posed the exact same question to you about Gold being on day 33 and how dangerous it was to hold AGQ, you said it wasn't a cycle trade. This time, gold is on day 18, so there is room. We're discussing a VERY light trade using call options, as we know the approximate top in days left in the cycle, that gives us a huge advantage with very little risk.

I am in agreement with Poly in the first two posts posted by him. some of us have room to play with though, having bough in last week.NOT SURE if I would be buying here, unless I could watch closely.

I also agree with Gary that There is NO REASON to stay invested in anything that you are unsure of...so best to stay in cash for those unsure. In fact there have been so many 'wiggles' in all of the markets lately that instead of jumping in and out daily...why not go to cash...relax...and wait for the I.T. low and jump onto a solid trade, one that confidence is very strong? Nothing wrong with Cash until the fog clears.

Most of my metals holding sold off lightly yesterday and turned back up, closing green , buyers reversed the sell off I.M.O. , closed above 20sma.

Alex, it's probably just a matter of understanding each specific trade. If you view my argument from the standpoint of having 25% or a large sum invested in that setup, then what I am saying would be crazy. I'm talking small risk with BIG payout trade only.

Silverhound, nice you liked the charts. Yes, the present triangle consolidation might resemble the one of October that year, a wave 4. The bullmarket in the 1970's started in 1971, the present one in 2001, so same age. + The spike in 2006 could correspond to the 1974 spike, and the 2008 bottom to the temporary lull the years after 1974. Also very important, during the quadrupling of the goldprice 1979-80 the dollar rose together with gold, all the time week after week. (As has also happened many times later).

But such a triangle consolidation can also break to the downside, the average odds are 30% to the downside and 70% to the upside.

What is important is the real rate of interest, when negative, people flee to gold in order to preserve wealth, and it was negative then. Interestingly, negative today also, albeit not to that degree. (However in China and India - comparable).

In addition to that , I also dont think you are personally isking anything big here, because of your trading style, but also I have read your posts all along,You've been bullish and adding gains along the way.

Vistor,Do you really think silver will hold up if gold trades back down to $1400?

Yes, I don't believe silver will break below $30 before new all time highs

Arron,Could you see silver dropping to $32 from $50 in 5 days?

Gary, I think part of your thinking that silver is in no way "manipulated" is why you believe that drop was justified. I'd say 5 margin hikes in a short time span is manipulation and added to the steep, quick drop.

With all due respect I just think you are getting whipsawed in and out and trying to justify your moves. I think your philosophy a few years back (a true Old Turkey and a combination of metals index/ETF combined with a variety of smaller individual names was and would be a better strategy.But, that was before your blog took off, so maybe you are making more with subs and need to feed them information to keep them on edge.????

The current gold daily cycle is officially right translated now, so a test of high is very reasonable. The drop into the low should be of a waterfall variety, the $64 question to me is just "when". I will hold my smallish DGP until next week, with tight trailing stops to protect gains. I still have July SLV puts and August GLD puts as my core summer holdings.

Wes,I'm not sure what you mean by uninspiring. It's only day 2 of a potentially new daily cycle. The market doesn't have to recover all the losses from a daily cycle low in 2 days. I tend to think most losses will be recovered by the time the half cycle tops.

I also think that the stock market may be able to resist a rising dollar for a while mostly because it is very early in the daily cycle, whereas gold is very late in the cycle and any strength in the dollar should force gold to roll over into the next cycle low.

It's just not worth the risk at this point when all I have to do is be patient for a month or two and I will get another great setup with much larger profit potential.

years ago I used to trade NXG (2006) and did ok, but have stayed away from it lately.I held it for a while and while exk and AG doubled and tripled, NXG was sideways...so I havent looked at it, but if it goes above $3.50 in the future...I would imagine it could finally break loose.

Isn't a D-Wave just a severe IT cycle low?Can't have a D-Wave without an IT cycle low. The severity of the IT cycle low should be inversely related to how far the IT cycle stretch above the mean.

C-Wave tops blow off, causing a D-Wave reaction. Hard to argue that was the case here. but it really does not matter, does it? We're still getting an IT cycle low over the summer, like it or not. That will be a monster profit maker.

if you think Soros is making a smart and well timed move out of gold, why not taking the other side of his trade, which is into agriculture for a summer trade? His biggest new purchase were shares of AGRO.Seasonality favors the agriculture trade over PMs now, and then one could comfortably rotate into PMs at the next IT or D-wave low.

I don't think we break to new highs in gold...I mean sustained new highs. Tag the high or slightly higher, and then the races are off to the downside. This trade really seems tired...people are on board for new highs, but what's after that? Without a clear target to hold for I don't see why the market will keep going up.

Of course I have been doing almost nothing for the last month.

My monoply play bet...we slightly tag a new high in gold, and then correct 5%. Then a whole bunch of people will jump in on the one day gold moves up sharply, and then we continue to tank. We will find some support at 150...but will it hold? The entire climate seems different, so unlike last time, I am not as certain about the 150 holding this time.

Silver is interesting; it has gotten alot of support at current levels, I wonder what would happen if we got another push to the downside. Would the current buyers buy more, or bail and make the problems worse...

CMT,PMs have gotten unpredictable and at this time I just keep an eye on them but not much else.I have a handful of July 32 puts and that's it.There are a lot of other stocks out there to trade for a buck or two.

ALEX, gold stayed nice. Even got a lot of my June GLD 138 calls filled at 12! I'm slowly exiting almost everything. Over the past 2 days, sold all my DGP, EXK, NUGT, and the rest. Am left with a handful of GLD calls, which I may sell today.

Pretty good point on unpredictability on AG due to weather. We just saw over 300 tornadoes in one day a few weeks ago, and the flooding now in mid-west and so on.HUGE droughts right now in the south ,usually lead to fire.CRAZY.

This can actually be very bullish for grains , prices go up do to scarcity.

When I trade AGS, its short term , they do usually move well if you can catch a low. And I trade fertilizer stocks ( CF is a specialty agricultural chemical producer)mostly, because if weather harms crops early in the season, maybe they re-plant...ordering more fertilizer.

But cycles would be tough for the weather alone reasons, as you mentioned.

CMT,A profit is a profit.Most times I'll take a day or overnight trade for a 150-400$ profit. That's good for me, as long as I average 300-400$ a day I'm happy because it is 75-100K a year and for a couple with no kids, no mortgage, no car payments, in essence only living expenses (food, phone, heat, property tax, travel..) that is good. Even 50K is ok but I like to build up reserves.The best part is I do this in my jammies and no arsehole employer to annoy me (not a people person).

Miyagi, I understand completely. When I "retired" from my law practice this spring at 39, I thought that if I could just make 1000/month to supplement my savings, I would be fine forever.

Then, in April, when I started making 5-10k/day, it totally warped my perspective. Then, the market reminded me that things move both ways.

I'm kind of glad I'm mostly cash now; while working in your jammies is nice, going to the gym or range is even better. I think I'm wearing a butt groove in the chair in front of my computer over the past few months.

CMT,I hear the buttgroove part!I like cycling, probably the only sport I truly enjoy as I can do it solo and not be annoyed with someone else's pace. The weather here just turned acceptably warm so I'll start soon.Other than that, I am finishing an entire basement (1500 sq feet) by myself, deadline end of August.My wife works but she sat out the past 4 years so she got bored while I don't.

How much did you set aside for trading before you left the rat race? How much do you keep in reserve at a minimum that is non-traded? If you don't mind sharing... I'm not asking you to share your net worth; I don't want to upset anyone! Just wondering what you feel you needed to have in place to walk away from the corporate world and manage your money for a living. You seem to have a cool head about you re: risk and return. Thanks!

KAL,When I split from my shitty employer I got a 200K settlement from which I paid off our house and set aside 75K to trade. Also I had my pension portion that came back which I use for longer term holdings as they are locked in LIRA and RRSP.Aside from that, we had put aside 25K to finish the house.As you can see, we are not rich but we have no debt and NO CHILDREN.I don't mind sharing some details like this because, seriously, you're not going to find me under Miyagi in the phone book, also it might give incentive to anyone with even 30K to learn trading.I think that if someone is here on this blog and following Gary's writings, they are on the right path.

Most important: pay off your debts and quit buying useless shit to impress others. Who cares if you drive a 15 year old car?

Pay off debt and dont buy to impress others. You sleep better that way too. :)

I was just looking at UUP (can anyone post a chart of the dollar WITH VOLUME? I cant get volume). Looking at UUP..it has broken below the 20sma today and its below the 10sma. If it closes below the 20sma...bearish.

The MACD is near the zero line and crossing down.

The stochastics has turned down below 80, which indicates further downside.

LARGE wide open gap at the bottom where the dollar broke out and that HUGE volume needs to be retested/ Gap filled I.M.H.O.

re: MrM saying "Most important: pay off your debts and quit buying useless shit to impress others. Who cares if you drive a 15 year old car? "

If I can get preachy; I also have no kids, so I can really live on less. But, my law partners all lived in $1M-2M houses, drove $90k cars, etc. When I made partner, I went home (the one I paid $250k for) and told my wife that we could never spend more than I made the last year as an associate. Not because I was planning to retire, just because I thought their behavior was ridiculous.

5 years later, I had saved right at a million dollars. I resigned my partnership in February. Next month, we're moving to Florida and I'm going to spend my days sailing and fishing.

The only reason I can do that is that I lived on far less (sometimes as little as 20%) of what I made. Now granted, I made good money, so it was easier, but the concept is the same.

My 2003 truck has a dent in the door and doesn't look as cool as all of my partner's porsches. But they're at work today.

Bruce,Unless you think gold is never going to enter another intermediate correction I don't see how it gets negated. The Hui has already dropped below a prior daily cycle low. The sector is already in trouble. Gold may resist for a bit but everyone needs to be prepared for the sector to get hit hard this summer.

If you really want to see the value of your "stuff", move. Planning for this move makes me want to take all the crap I bought (i.e., traded my time for money for stuff) to the dump so I don't have to move it.

CMT, So true, I spent a lifetime moving and I really don't want to have to do it again as we have been here 15years and I cannot fathom the thought of having to move it all now. You are right, when you move around a lot, you tend to travel light. Since I am only home for a few weeks at a time, I call up good will and request a pick up. I go around the house and pick up all the stuff we don't use or need at that time and pile it up. take a picture and make the list and off she goes with a receipt stuck in my door. At the end of the year, I take the photos out and list it all on "It's deductible".I use Turbo Tax, so it imports right in. Hardest part is putting it in boxes and not thinking twice about taking it back out. You never miss it. We have a large family so a lot gets dragged into this house, my job is to pry it loose from everyone.

Thanks Mr. Miyagi and CMT! I appreciate your candor. I actually don't have kids, the ones in my picture are props for pyramid scheme purposes. Seriously...

I drive a 1990 Honda Civic Wagon. Paid $400 for it from a friend a few weeks ago. I have become a shade tree mechanic... New plugs and wires, new air filter, new fuel filter, cleaned throttle body, next up pvc valve and maybe more interesting projects. Maybe. Anyway, I am a cheapskate but I heard that's how you make your first million! Don't worry, my wife has a nicer car for herself and the kids. I drive 4 miles to work right now, so no big deal.

I've always lived on less than I've made... Right now it's tough but at least my wife gets to stay home with the young 'uns. In a few years she can go back to work and things will have a little more breathing room for the future.

By the way, I don't mean to harp on anyone here with kids, I just don't like the idea of parenthood (or kids..) and I tend to speak my thoughts as I have no filter.I love dogs though, they are the sweetest souls.

Senor Miyagi, are you talking about the fuel filter? I took off the gas cap and opened the little pressue release screw on the bolt for the filter and we were golden. That released all the fuel line pressure... A little jumped out but nothing an old t-shirt wouldn't hold.

Kal: I drive a 1990 Honda Civic wagon!! I love that car and may never ditch it. They only made that model for two years.

My wife and I (35 years) have no debt, no kids, no house (I love renting---no headaches) and live on about 50% of what we make. One guy I read referred to "stuff" as "future landfill." I thought that was well put.

My old Toyota '93 camry was a workhorse. I picked it up with 155K miles in 2001 and traded it in for $1500 last year with 212K miles. It was leaking oil, axl was cracked, beat up....Couldn't believe the dealer gave me that much for it.

Hey, DG, I have already decided to be you one day when I grow up. Now that we drive the same car, I will go ahead and say it out loud!

Next week I'll be married 13 years (or maybe "more than 12" or "almost 14", haven't decided yet!). Anyway, I like the Wagovan. I prefer my old 84 CRX or the 88 CRX Si but this will do. Those 92 horses are kinda fun.

Miyagi, I think you're right about the high pressure filter. My dad changed mine on the 88 CRX once, and he asked if the 90 had one too. I don't know but I'll look into it. Definitely would have to take the fuel pump out of the equation on that one I'm sure.

DG, we lost a hosue to a deed-in-lieu of foreclosure last year when our renters moved out. It's a long story but that's how it ended up. I like renting, since I don't have to do anything to the house. I've rented one after owning two before and I'm satisfied this way. Glad to see I'm not out of the wisdom loop.

That 89 Buick sounds classy. Good datemobile! So, since we are digressing, DG, I have steelies on the Wagovan. I also have some flat black paint. So, black steelies or stock steelies? What do you think? The car is that Carolina blue.

Aftershock authors advise selling any second homes and if you can sell your home and rent as the market is still dropping and no added value in owning one anymore, especially if they take away the mortgage deduction. So unless your house is paid off, you are better off just renting.

...at ease, you are full of wisdom RE millionaires not showing their wealth. My favourite car ever was a Volvo S40. So comfortable, so strong. Felt like I was driving in a tank or armoured personnel carrier.

I miss my Midget, it was like driving a little airplane on the road. I could fly around corners, shift those gears and feel like a race car driver, get out on the runway (old Army airfield in Mitchel Field NY) and skid around in the ice and snow. What a fun time it was! Now, I hate driving too much traffic.

Yeah, now I have one of those electronic horrors from day one off the lot. We wanted a good reliable well built car for road trips. I swore it was a lemon day after I got it home and they just kept saying bring it back we will fix it. Hubby's first trip from VA to OH, he dropped the transmission. Towed it back and they fixed it. Everytime it beeps, I just say, oh sh*t, what now?

Just wanted to also say let's keep those who aren't here in our minds this weekend. I lost two uncles in the past five years, both WW II vets. One was a Navy UDT/Seal at Normandy, the other a Marine in the Pacific at the battle of Guam, Okinawa, etc. I wish I knew all this when they were alive as I could have asked them all kinds of questions. To late now.

ckpc, Did your Dad buy you that 88 car? Dad's like to buy tanks for their daughters. ;) My Dad was pleasantly surprised, when I took him out to look at my first car to buy, as he borrowed it until I got my license... just to make sure it ran well.

KAL, actually I do, but fairly central, 30 feet from the local bus stop. I don't really need one as public transport is good here (London). Plus price of petrol, residential parking permits, auto registration fees, inspections etc. etc. make it uneconomic for me. Plus one more possession to worry about. It would be different if I lived in the country, though.

at ease;ha ha ha! Yes, my Dad DID take me out to buy that car, but I paid for it in cash from my summer job. Boy, those were the days!However, my Dad didn't give me any instruction on how to take care of it...like the necessity of putting coolant in the radiator. I knew I should put water in it, and that just wasn't enough for a 90 degree Summer day driving on the highway. Luckily the driver behind me had a fire extinguisher!!! Some things you learn the hard way....kind of like trading.

cpkc, My Dad was a Submarine engineer (Career Mustanger), and one of his hobbies was fixing up cars, starting with model Ts. He was a big Ford man. I didn't learn much on car fixing, matter of fact, I still refuse to pump gas, (they used to do that for you). My kids do it for me, now as I don't drive much and they usually borrow the car. Times have changed, It used to cost me less than $7. to fill up my MG tank. Cost me $63 to fill up yesterday. Geesh!Miss my Dad, he had quite a spirit of adventure and a big can do anything attitude.

I use volumes almost 90% of the time, and what Gary said is what I look for.

Also, I just dont like to buy low volume stocks (like they trade 60,000 avg a day, sometimes 20,000 for example) , because they trade oddly and if they sell off, the price on a quick attempt to market sell drops FAST. So if its at $16.50 and selling off fast , you're mkt order sell may get out at $16.30 or worse.

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